US remittance tax on green card, visa holders may hit Indian households, rupee: GTRI

A proposed 5% US tax on remittances sent abroad by non-citizens is raising alarm in India that the move could cut billions in vital foreign currency inflows and pressure the rupee, a leading Indian think tank said on Sunday.

The Global Trade Research Initiative (GTRI) warned that the measure, part of a sweeping bill backed by House Republicans, could raise the cost of sending money home for over 40 million non-citizens, including green card holders and those on H-1B, H-2A, and H-2B visas.

"The proposed US tax on remittances sent abroad by non-citizens is raising alarm in India, which stands to lose billions in annual foreign currency inflows if the plan becomes law," GTRI said in a statement.

India received a record USD 129 billion in remittances in 2024, the most of any country, followed by Mexico (USD 68 billion) and China (USD 48 billion), according to World Bank data.

The share of remittances from the US rose to 27.7% of India’s total inflows in 2023-24, equivalent to USD 32.9 billion, up from 23.4% in 2020-21, the Reserve Bank of India (RBI) said in its March bulletin.

A 5% tax on that amount would translate into a potential annual levy of USD 1.64 billion, GTRI noted.

A 10-15% drop in remittance flows could result in a USD 12-18 billion shortfall for India annually,” said Ajay Srivastava, founder of GTRI.

He warned that the fallout could tighten US dollar supply in India’s foreign exchange market, exerting modest downward pressure on the rupee and prompting the central bank to step in more frequently.

“The rupee could weaken by Rs 1-1.5 per US dollar if the remittance shock plays out fully,” Srivastava added.

Remittances are a critical lifeline for millions of Indian households, particularly in states like Kerala, Uttar Pradesh, and Bihar, where families depend on foreign income for education, healthcare, and housing.

Srivastava said that a sudden decline in these flows could hit household consumption hard, at a time when the Indian economy is already navigating global uncertainty and inflation pressures.

He added that the US move to tax global capital flows risks disrupting a key source of development financing and could weaken demand in economies already struggling with inequality and instability.